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When a disabled or vulnerable person inherits under the intestacy rules, the outcome is often harmful rather than helpful. The intestacy rules treat everyone equally — they cannot be sensitive to one beneficiary's need for protection from the benefits system, or their inability to manage a large sum of money. A sudden inheritance can strip away carefully maintained benefits eligibility overnight. This is one of the most important reasons why families with disabled members must make a will.
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Many disabled people rely on means-tested benefits to fund their daily living, housing, and care. These include:
If a disabled person inherits more than £16,000 in capital, they lose entitlement to these benefits immediately. Even if the inheritance is smaller (between £6,000 and £16,000), it is taken into account in means testing and reduces the benefit payable.
The perverse outcome: a disabled person who might have benefited from a modest inheritance could instead find themselves worse off — losing more in benefits than they gained in inheritance, until they have spent down the inherited capital.
Note that non-means-tested benefits (Disability Living Allowance, Personal Independence Payment, Attendance Allowance) are not affected by capital.
The intestacy rules under the Administration of Estates Act 1925 give no special treatment to disabled beneficiaries. A disabled child inherits an equal share alongside their siblings, in the same way as any other child. A disabled spouse inherits what any surviving spouse would inherit. There is no mechanism in the intestacy rules to hold the inheritance in trust or release it in a way that protects benefits eligibility.
For the full intestacy overview, see our main intestacy guide.
A beneficiary can disclaim (refuse) an inheritance. If a disabled person disclaims their share, it passes under the intestacy rules to the next eligible person — it does not stay in trust for the disabled person. The disclaimed share cannot be directed to a trust for the disabled person.
A disclaimer is irrevocable. It is a nuclear option — the disabled person simply gives up their share. This may be rational if the inheritance would cost them more in lost benefits than it provides in value, but it is a poor substitute for proper planning.
Note: DWP may treat a disclaimer as a deliberate deprivation of capital if the purpose was to preserve benefits. The position is complex and legal advice is essential before disclaiming.
If the disabled person has mental capacity, they have the same rights as any other beneficiary to apply for letters of administration (if they are at the top of the priority order). If they lack mental capacity, their deputy (appointed by the Court of Protection) may be able to act on their behalf.
The Inheritance (Provision for Family and Dependants) Act 1975 gives courts the power to order additional financial provision for a person where the intestacy rules (or a will) fail to make reasonable provision. For a disabled child or dependant, the court has particular regard to their financial needs and physical or mental disability.
However, an Inheritance Act claim is adversarial, expensive, and uncertain. The court cannot direct that provision be made via a discretionary trust in the same way a will can — the outcome is a cash payment, which still creates the same benefits trap problem.
A 1975 Act claim is a last resort. The right solution is a will with a properly structured trust.
The solution — and it is only available through a will — is a discretionary trust (sometimes called a vulnerable persons trust or a protective trust). The key features are:
HMRC provides a special tax regime for “vulnerable beneficiary trusts” — trusts for disabled people qualify for special inheritance tax and income tax treatment, making this a tax-efficient as well as a care-appropriate solution.
Setting up a discretionary trust requires specialist legal advice. It should not be attempted without a solicitor who understands both the trust law and the benefits system implications.
Anyone with a disabled or vulnerable family member who they wish to benefit must make a will with appropriate trust provisions. The intestacy rules simply cannot deliver the protection these beneficiaries need.
Other family members should also consider whether their own wills protect the disabled person — a grandparent's will, for instance, can leave a legacy to a discretionary trust rather than directly to a disabled grandchild.
Get personalised help from Farra. Or see our probate checklist.
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